By Tiernan Ray

Sanford Bernstein chip analyst Stacy Rasgon this afternoon offers his thoughts on Intel’s (INTC) announcement this morning it has developed what it calls the world’s first microprocessor for servers that uses as little as 6 watts of power, down from 40 watts six years ago, to power racks of servers that use multiple processors packed densely for things such as cloud computing data centers.

The “S1200” family of chips, as they’re known, are Intel’s response to the increasing interest in energy-efficient server processor concepts from competitors Advanced Micro Devices (AMD), Nvidia (NVDA), Applied Micro Circuits (AMCC), starup Calxeda, and other companies that using the chip architecture of Intel’s nemesis, ARM Holdings (ARMH).

The chip is based on Intel’s low-power CPU approach that’s been used for mobile devices, “Atom,” and the company promises even greater power savings next year as it moves the chip to circuits using the three-dimensional “Tri-Gate” transistor it developed and the next, smaller circuitry, at 22 nanometers, code-named “Avoton.”

Rasgon, who has an Underperform rating on Intel shares, and an $18 price target, thinks Intel has a lead on the competition with its support for 64-bit instructions, but he is concerned that prices and margins for Intel will be under pressure in this corner of the server chip market:

We believe appropriate workloads for such microserver architectures (those with high levels ofthroughput, lower processing needs, tasks that are inherently parallelizable, and where customers write their own software) are a minority of the total (perhaps 10-15%). However, they are also likely some of the faster growing, and could be 20% or more of the total by 2015.- We believe the need for 64 bit is a deal-breaker, thus Intel’s current solutions have a head start (indeed, Atom has been used in such applications for some time). We would therefore not expect to see ARMbased competition for some time (perhaps 18-24 months) until ARM’s new 64-bit cores reach volume production. However, such products are most certainly on their way.- We believe Intel’s assertion that revenue could be flattish or increase when swapping to a micro-server application is correct (we have sized such an example in the second piece linked below). However, we believe margins (% and dollars) will be diluted by such a move.

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There are 8 comments

DECEMBER 11, 2012 3:23 P.M.

Jay wrote:

AMD is in front of server chips right now. Intel is left behind in server and mobile chips.

DECEMBER 11, 2012 3:30 P.M.

Cube Monkey wrote:

Intel beats ARM to 64 bit microserver market, so they get beat up for potentially hurting their margins based on price. If Intel didn't get into this arena, they would be beat up for missing the opportunity. In fact, if the price point is right, there will be less competition from ARM because the return on investment of developing a "me too" solution might not be there. I can't see how this is anything but a win for Intel. Obviously, the bear pundits see the glass as half empty no matter what.

DECEMBER 11, 2012 3:43 P.M.

Dan wrote:

You writing what ever you can to try to keep Intel stock low sounds to me your in a buying mode it would be nice to see your real portfolio..

DECEMBER 11, 2012 3:47 P.M.

Dan wrote:

Jay you must being crazy AMD in front of Intel on servers. AMD cannot even make an etch n sketch work correctly and by the way have you seen AMD's profits for the last 10 years oh wait there has been no profits...

DECEMBER 11, 2012 3:52 P.M.

Fred Stein wrote:

Great to see Intel leverage there process advantage. CPU core price is not so important as DRAM, SSD, Power and Cooling are the big cost drivers.

DECEMBER 11, 2012 6:46 P.M.

Principle wrote:

Well, you do know that there is already a 64-bit ARM processor? And there is already an AMD Brazos based system like this. Intel Atom is a wait and see kind of announcement, not expecting much from it.

DECEMBER 11, 2012 11:56 P.M.

Jay wrote:

The reason intel ceo retire next year is because they are so behind many others.

DECEMBER 12, 2012 6:20 A.M.

Anonymous wrote:

Oh hey. Happy Anniversary Intel and Microsoft. This is the anniversary of when those two giants were great.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.